Reviewing Piketty (again)

I have just submitted a 6000 word review of Thomas Piketty’s book, Capital in the 21st century, to Historical Materialism journal. Under HM rules,I cannot publish this anywhere else (unless they reject it) and so it may not see the light of day for a while. It may not be the most perceptive of the now hundreds of reviews that have been published, but it is certainly vying to be the longest!

Anyway, here is a flavour of what is in the review from the abstract submitted.

Thomas Piketty’s magnum opus on the accumulation and distribution of wealth over the last 200 years has been greeted by the biggest noise from the great and good inmainstream economics (and by the heterodox ) of any economics book, possibly ever. Piketty shows compellingly that inequality of wealth and income is inherent in capitalism and it is getting worse. Most important, he shows that the reason for the rise in the inequality of wealth is a rise of income going to capital in the form of profits, rent and interest. Inequality is not due to higher skilled labour getting higher income than the lower skilled. The unanswered question for Piketty’s thesis is this. Is rising inequality the central contradiction of capitalism and thus its grave digger? Is it a tendency for a rising net return on capital (Piketty) or is it the tendency for a falling rate of profit (Marx) that is the key contradiction of capitalism in the 21st century?

A lot of reviews seem to suggest that Piketty’s book is ‘updating’ Marx’s Capital in some way. When you read Piketty’s comments on Marx’s explanations of the contradictions in capitalism, it is clear that this is not so. Here are some from the book:

Marx thought that capitalism would have an “apocalyptic” end but thanks to “modern economic growth and the diffusion of knowledge” that has been avoided. But there is still the problem of the “deep structures of capital inequality”. p1

“either the rate of return on capital would steadily diminish (thereby killing the engine of accumulation and leading to violent conflict among capitalists) or capital’s share of national income would increase indefinitely until the workers went into revolt.” p9

“like his predecessors Marx totally neglected the possibility of durable technological progress and steadily increasing productivity, which is a force that can to some extent serve as a counterweight to the process of accumulation and concentration of capital” p10

“Marx’s theory implicitly relies on a strict assumption of zero productivity growth over the long run”. p27

“the rate of return on capital is a central concept in many economic theories. In particular, Marxist analysis emphasises the falling rate of profit – a historical prediction that has turned out to be quite wrong, although it does contain an interesting intuition.” p52

Marx’s r falls because in his model of capitalism, there is “an infinite accumulation of capital” and “as ever more increasing quantities of capital lead inexorably to a falling rate of profit (i.e. return on capital) and eventually to their own downfall, while growth in net income (g) falls to zero.” p252

10 Responses to “Reviewing Piketty (again)”

Piketty himself, has said that he doesn’t support nor adhere to Marx or Marxism. He’s a social Democrat looking to promote structural changes to capitalism that will lessen systemic crises and create economic equilibrium amongst the various classes of society. I haven’t read his book but from the reviews I’ve read is that its concluding mantra is “taxation of the rich is our salvation.”

“Piketty shows compellingly that inequality of wealth and income is inherent in capitalism.”

Piketty offers data that inequality has been high throughout almost all capitalist history. His neoclassical “explanation” does nothing to show that inequality is inherent in capitalism. I presume your full text makes the same point.

Charles – if that is Charles Andrews, then a great review of Piketty. You are right; Piketty’s data show that inequality is inherent in capitalism, not Piketty himself. Actually, inequality is inherent not just in capitalism but in all class societies, really by definition. That shows that inequality is not the key contradiction in the capitalist mode of production.

How close is Piketty to the Monthly Review School?
Is he saying there’s more inequality due to politics (neo-liberalism) causing profit rates to be high at the expense of wages at the same time technological innovation has limited growth opportunities?
The solution is to reduce profit rates in favour of wage increases & this provides a boost to demand & growth?

Paulo
In Piketty’s case, the rate of return on capital is an average return on a bond (interest rate), land (rent), housing (‘rent for housing services’) and profit from business. In Marx’s case it is the surplus value created by the workers in the capitalist sector of production divided by the total amount of accumulated capital (plant, equipment, technology etc and labour employed). The key difference is that Piketty reckons capital includes your home, while Marx reckons that is not productive capital or means of production but ‘wealth’ accumulated from profits but used by capitalists in consumption and by workers from their wages in paying interest on mortgages. This is not capital for Marx. So Piketty’s rate of return on capital is different from Marx’s rate of profit (or rate of return) on capital. Finally, Piketty reckons the rate of return on capital is pretty much unchanged over the long term while Marx reckons there a tendency for the rate of profit on productive capital to fall over the long term.

“The law of the falling rate of profit……..simply another expression for the increased productivity of labour (Capital vol.3 p322) and “Thus the same development in the social productivity of labour is expressed…in a progressive tendency for the rate of profit to fall’ (Ibid. p329). Clearly like most of his ilk Piketty has not read ‘Capital’ with any care, if at all. It is like claiming Copernicus argued for a geocentric theory of the Universe!